MANDELMAN: Our future hinges on just ONE thing


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Wall Street’s bankers are today’s demagogues…


Far too many Americans believe the “irresponsible borrower” stereotype caused the foreclosure crisis.

people do not knowingly buy homes they cannot afford.  No, they do not.  They don’t.  It’s a preposterous thought.  Like telling me that there are millions of people somewhere in the USA that like to buy cars with payments they can’t afford… because I suppose they like to hide them around the block every day and night until they get repossessed.  Then they wait 7-10 years until they can buy another one with payments they can’t afford so they can enjoy the experience all over again.”


How the foreclosure crisis impacts our country’s standard of living from this point forward will all come down to how we handle ONE thing.  We either change that one thing, or most assuredly we will at best continue to experience in the future more of what we’ve experienced to-date.  It will not get better.  It will only worsen and worsen significantly… unless we change the ONE thing.

A country’s “standard of living” includes such factors as income, quality employment, class disparity, poverty rate, quality and affordability of housing, gross domestic product, inflation rate, availability of education, life expectancy, infrastructure, economic and political stability and personal safety. Our country’s standard of living is what dictates our quality of life, and while money can’t buy us love, it does buy our standard of living.

There is nothing capable of destroying the wealth of our country’s 99 percent faster or more permanently that the foreclosure crisis, so there’s nothing capable of lowering the 99 percent’s standard of living more dramatically than the ongoing wave of foreclosures.   Zillow’s report published in December of 2010 showed that U.S. homeowners have lost $9 trillion since the housing market’s peak in 2006, and $1.7 trillion of that total was lost in 2010 alone.  And that same report showed that it’s getting worse.


Evidently, the pace of the decline in residential property values is accelerating.  If consumer wealth was wiped out at the same pace in 2011, we’d be just under $11 trillion in lost wealth today, but we’ve probably already passed the $11 trillion mark, because the decline in values escalated in 2011 over 2010.

So, how about for 2012… should we assume $2.5 trillion lost for the year?  Based on those numbers, by the end of 2012, U.S. homeowners will have lost right around $15 trillion in accumulated equity, an amount that, at 50 years old, won’t be made up in my lifetime… and three times the amount of equity created between 2001 and 2006.

In addition, it’s important to consider that our country has had a very serious problem with income and wealth inequality for a long time, and the wealth lost due to the foreclosure crisis is making that problem exponentially worse.  According to IRS data, in 1988, the average American made $33,400 adjusted for inflation, and in 2008, nothing had changed… the average American still made $33,000.  Meanwhile, if you made $380,000 a year, then your income increased by 33 percent over the last 20 years.  And, of course, stock market gains make the disparity much worse.

You see, during the ‘Roaring 1920s,’ bankers had become America’s royalty, but when Pecora finished questioning them, the way people viewed the bankers changed dramatically.  Sen. Burton Wheeler of Montana compared their acts with those of Al Capone and the American public began referring to them as “banksters.”  (And here I thought we came up with that last year.)

The Pecora Moment created the political support that allowed FDR’s administration to hold Congress in session in order to pass laws that the bankers opposed, like the Securities Act of 1933, the Glass-Steagall Act of 1933, the Securities Exchange Act of 1934, creation of the FDIC, Tennessee Valley Authority, et al, all of which were designed to prevent the abuses brought to light by Ferdinand Pecora.  He made the cover of Time Magazine, by the way, on June 12, 1933.


Far too many Americans believe the “irresponsible borrower” stereotype caused the foreclosure crisis.

You know the stereotype… we all do… reckless and greedy people who bought homes they could never hope to afford by signing their names on nothing down, 80/20 “liar loans” with negative amortization and teaser rates of 1%.  And the property flippers looking to make a quick buck, gambling that home values would only go up forever.  They gambled and they lost and as a result today’s foreclosures are appropriate and deserved, so let’s get on with it.


people do not knowingly buy homes they cannot afford.  No, they do not.  They don’t.  It’s a preposterous thought.  Like telling me that there are millions of people somewhere in the USA that like to buy cars with payments they can’t afford… because I suppose they like to hide them around the block every day and night until they get repossessed.  Then they wait 7-10 years until they can buy another one with payments they can’t afford so they can enjoy the experience all over again.


The quickest way to end up underwater is to live in a neighborhood that is plagued by foreclosures.  … As homes go into foreclosure, they create a domino effect, lowering home values throughout a neighborhood in a cascade beyond homeowner’s control.” Anna Maries Andriotis (2009) in Smart Money

It should occur to more people, in my opinion, that we are experiencing a national decline in housing values unlike any we’ve experienced in the past.


Negative equity today impacts the housing market tomorrow…

Housing prices fell drastically between 2006 through 2009, at the same time that credit and then employment markets tightened.

In 2006, about 7 percent of United States’ homeowners owed more on a single family residential mortgage than what the property could have sold for (Calculated Risk, 2007).  By 2010, estimates of those “underwater” on their home mortgage had risen to between 20 and 25 percent (Streitfield, 2010 and The Economist, 2010).  And Haughwout and Okah (2009) calculate this percentage to be even larger in some metropolitan areas in the United States.

In numerous cities more than half of all homes with mortgages are underwater, including Phoenix (66.2 percent), Atlanta (58.7 percent), Riverside, California (51.4 percent), Tampa (56.5 percent) and Sacramento (50.9 percent). Other big metro areas with a high percentage of underwater homes include Miami-Fort Lauderdale (46.7 percent), Chicago (46.2 percent), Cleveland (41.5 percent) and Denver (38.5 percent).


We must stop the free fall in home prices or no economic recovery is possible…


Unlike other investments, homes are both a consumption and investment item.  No other purchase or investment contributes to our economy like houses do, because we spend money to maintain and improve our homes year after year throughout our lives.  Homeowners are constantly purchasing goods and services to make their homes prettier, more comfortable, safer, sounder, bigger and newer.

Yes, a home provides a family’s shelter, but it is also a forced savings account in the form of mortgage payments that pay down principal, and an investment because financial returns are realized as a home’s value rises.  And homeowners have always been able to access their accumulated wealth without having to move, through home equity loans or replacing a smaller mortgage with a larger one.


The cost of foreclosures to our society…

It shouldn’t be difficult to imagine that the foreclosure crisis is having a devastating effect on our society monetarily and otherwise, however, until recently it was difficult to quantify these effects, beyond lost equity, in monetary terms.  We all need to recognize that the unacknowledged victims of the foreclosure crisis are those who haven’t lost homes to foreclosure, but nonetheless are paying the price that foreclosures impose on all of our communities.

The Massachusetts Alliance Against Predatory Lending (“MAAPL”) and the Harvard Legal Aid Bureau published a report in June of 2011, titled: “VACANT SPACES – The External Costs of Foreclosure-related Vacancies in Boston.” The report presented findings from a comprehensive and very well documented study of only three specifically quantifiable costs paid by the public-at-large that result from foreclosure-related vacancies in the City of Boston:

  • The costs of securing vacant homes.
  • The costs associated with the increased crime caused by vacant homes.
  • The drop in property values and property tax revenues for whole neighborhoods when a nearby house goes vacant.

The Vacant Spaces study concluded that, “a single foreclosure costs Boston and its citizens somewhere between $157,058 and $1,028,862.”

When you break it down, here’s what it looks like for the citizens of Boston:

  • Taxpayers lose $20,723 to $32,053 per vacancy (Based on a 22 percent reduction in value when sold after foreclosure.)
  • Crime victims lose $12,813.
  • Criminal investigations, trials and incarcerations cost $16,316
  • Homeowners lose equity totaling $157,058 to $1,028,862.

And this is in addition to the costs to families losing homes to foreclosure.  The study showed that if every one of the 821 foreclosure deeds filed in the City of Boston last year created a vacancy, the cost to the city would have been $844,695,702… almost a billion dollars.  Unquestionably, the foreclosure crisis’ impacts are many and varied reaching far beyond the lives of those losing homes.


There’s another factor that makes the “irresponsible homeowner” stereotype so easy for those not yet affected by the foreclosure crisis to accept.  It’s a cognitive bias, meaning it affects how we’re predisposed to think, and behavioral economists would refer to it as “the just world hypothesis.”

You see, especially in this country, we all very much want to believe that we live in a just and fair world… it makes us feel relatively safe.  As a result, when we see something bad happen to someone else, we look to believe that they did something to deserve or at least cause their misfortune to occur.

For example, when someone tells us about someone diagnosed with cancer, we’re prone to ask whether they were smokers, or whether they were healthy eaters, or whether they were overweight or exercised enough, or whether cancer runs in their family.  We’re trying to attribute the cancer to something about the person or what the person did to the the diagnosis.  If we can’t make such a connection, we may still believe there must have been something that caused it to happen.  In simple terms, random hardships are scary.

It follows, therefore, that when we hear of people losing homes to foreclosure, we want to believe that they did something to make such a thing happen.  And so when we hear someone on television say that they borrowed irresponsibly, we accept it without questioning whether it makes sense, because we want it to be the case.


the ongoing perpetuation of the “irresponsible borrower” stereotype is not accidental, it’s a coordinated and highly sophisticated communications initiative being implemented by motivated experts.

The homeowner side of the fight, on the other hand, is comprised of individual homeowners and a relative handful of attorneys, each engaged in individual battles to save their own homes… along with a growing number of journalists and independent bloggers who appear to be sharing the same audience.

On the homeowner side of the fight, nothing is organized.  And as a result, the stereotype of the “irresponsible homeowner” remains safely ingrained, and with over 3,000 homeowners being evicted every single day, 365 days a year, homeowners are losing the war.

It’s true that in the past year, more court decisions are favoring homeowners, but 3,000 people being evicted as the result of a foreclosure every single day of the year means the banks are still securely driving the foreclosure bus, and they’re not nearly as worried about a decision in Massachusetts or Ohio as some would like to think.


Scapegoating is the practice of blaming a group for the failure of others. It is not uncommon that a group is blamed for the mistakes or crimes of others, especially when the blame is being placed on a group unable or unwilling to defend themselves against the charges.

Minorities are often the targets of scapegoating, and today’s homeowner in financial distress, as minorities go, makes for an easy target.  Those in the majority are more easily convinced about the negative characteristics of a minority with which they have no direct contact, and homeowners at risk of foreclosure live in a sort of self-imposed isolation, bound by shame and fear, and capable of vacillating between unreserved sadness and unqualified rage.

Quite often, they tell no one of their situation, quietly enduring inconceivable stress for years, in some cases, and ending up afraid to answer the phone or even go outside, in the most extreme examples.  Some have described their time spent at risk of foreclosure as being akin to spending that time in solitary confinement.

When a minority is blamed for some social ill, violence, persecution, and in the most extreme examples, genocide can result.  In our history, unemployment, inflation, food shortages, disease, and crime in the streets are all examples of social ills that have been blamed on scapegoats comprised of various minority groups.

Today’s stereotypical “irresponsible borrower” is being made into the scapegoat for the financial and foreclosure crises.

Demagogues exploit latent beliefs, fears, emotions, vanities and expectations of the public to achieve their own political objectives.  They depend upon propaganda and disinformation.

Most demagogues achieve their success because people want to believe that there is a simple cause of their problems.  Through the use of propaganda, persuasive arguments are made that one group is to blame for problems being faced by the majority.

Wall Street’s bankers are today’s demagogues…


So, here’s what Abigail Field and I need from you…


Homeowners… I know you’re stressed and busy and overwhelmed.  And I know you don’t know what’s going to happen next and if you’re not scared to death these days, then you’re not breathing.  But you have to do more.

At the very least, we when you see an article that’s intended to shatter the stereotype of the “irresponsible borrower,” like this one for example… don’t just read it… forward it to people you know that aren’t at risk of foreclosure.  Post it on your Facebook page… email it to your congressional representative… If you’re a member of an online group, post it there too… for God’s sake, drop copies of it from your helicopter, if you have a helicopter.  Help spread the message far and wide.

Bloggers… We don’t compete with each other, Abigail and I write articles, we don’t sell advertising, so cross post this article and ask your readers to send it to everyone they know.  And get in touch, because we’re building a list of “thought leaders” and we need your name and contact information on that list.

That way, when we produce an article or research report intended to address the “irresponsible borrower” stereotype, we can email it to you so you know to post it.  We need to get this one message out as far and wide as possible.

Lawyers and other industry professionals… You have Websites and blogs, but more importantly you have clients you talk to everyday that are a part of this fight.  I know how busy you are, but I need you to spend the extra 10 minutes it takes to not only post this and other articles to come, but to tell your clients about what we’re doing over here… tell them to read it on Mandelman Matters or on your site, or anywhere else for that matter.


It’s all going to come down to how we handle ONE thing… the “irresponsible borrower” stereotype.  Oh, I know it’s going to change eventually, but we can’t wait until eventually… we need to do it this coming year… a year that politicians are paying attention.

Because otherwise, and this much should be clear to all of us… we will lose… and lose BIG… and the truth of the matter is that WE… the people… WE’RE TOO BIG TO FAIL!


8 Responses

  1. Sorry Mandelman—————

    You got it wrong……………….

    Glass-Steagall act was repealed. No mention ever of putting it back in? I wonder why? Big banks do not want it put back in. Everything was fine before it was repealed. Big Banks are Global Banks in every country with a Central Bank just like the Federal Reserve System of Banks in the USA.

    And prior to that, the Federal Reserve System of Banks was started in 1913. And an that date the power to create money was taken over by public Stock Market Companies called National Banks, and thus the corruption in Washington DC started. More and more rules are added to not stop the corruption, but to cover it up. And the corruption is that Public Companies called banks create money via loans and promises to pay when in fact the Government should do so. But because the Government has been corrupted, why the people don’t trust the Government, the people in fact have not realized this.

    And if you bring back the power to create money, and thus banking back to the Government,,,,,,,,,,why any corruption is easily discovered and it won’t happen, and if it does, it is easily corrected by the people.

    Do you see?

  2. Quote from Neil —– “Far too many Americans believe the “irresponsible borrower” stereotype caused the foreclosure crisis. People do not knowingly buy homes they cannot afford. No, they do not. They don’t. It’s a preposterous thought.”

    Absolutely correct.

    Enraged — get to the government — however you can and whatever way you can — the same for everyone else here. …. —– ____…..@@@(((.&&& ((((####%%% -(CODE) — the government KNOWS.

  3. @Carie,

    Hang on, keep up posted and give them hell! I’ve had that “privacy laws” thrown at my face so many times that, had I had a gun, I would have used it. It is “my” account, “my” money. What the hell does “privacy law” have to do with it? Privacy for whom? Privacy laws were supposed to protect “me”! Not institutions, not corporations, not government. ME, as an individual!!!!

    Show me the ledger, the accounting, the money. My money. Where did it go?

    We have to stop giving it out. I’m turning into Cubed: boycott any financial institution, period. Pay cash for everything. Cash checks given to you. Put the money away and never, ever again, rely on anyone else to manage it for you. My husband is a small (shrinking) business owner. I am a small (really shrinking) business owner. We’re going to shrink even more once we stop taking checks. He’s already stopped taking credit cards payments.

    I’m building up so much rage, something will have to give.

  4. People—if you are involved with Indymac—check this out:

    especially 2.06 (a) and (b)

  5. …Then when I’m in BK—I do like “tony” said:

    “…If you have a former “Indymac” loan, then your loan is dis-chargeable. I would get your attorney to read DBNTC v FDIC # 09-3852 in the california federal district court central division. Then get him to understand what QFC v NON QFC.
    Have him understand they are debt collectors, servicing for no one, and that the trust is dead. If he thinks that it isn’t true, then tell him that DBNTC went into probate for all trusts so that it could get immunity. This case number is 30-2009-00300317PR-TR-LJC in SUPERIOR COURT OF THE STATE OF CALIFORNIA ORANGE COUNTY.
    Any lawyer should know that you do not go to probate unless something is dead and you are trying to finalize the end issues. Have your lawyer read these issues and then have him write and contact the bank and foreclosure mill and warn then not to take action until these can resolve that they did not do any of this, plus that they were not deemed general creditor by the FDIC.
    Also have him read MBIA v FDIC # 09-01011 in the UNITED STATES DISTRICT COURT FOR DISTRICT OF COLUMBIA. This case MBIA and insurance company for the securitizations for the indymac trust filed suit but lost because they were even labeled a general creditor by the FDIC. MBIA says some interesting things in this case to describe how the insurance works when there is a so called default by an home owner.

    If you file BK make sure you label your mortgage as that it is disputed contingent on the debt and then again on your assets. That means if you sue them for a million dollars make sure you put that in your schedules, so that they don’t say you didn’t do that and now your’e barred.
    Then when they file for relief of the automatic stay, make sure your lawyer gets them dismissed for lack of subject matter jurisdiction. Do not agree to let the BK decide on this matter in an adversary matter. Just block them from the automatic stay. When you get your discharge, then if you want—sue the pants off them…if you want.”

  6. I asked my “Indymac servicer” who is REAL, SECURED CREDITOR on this supposed “loan” that I have paid on for 4 years—answer:

    “I don’t have to tell you that because of privacy laws”.

    And then he tells me he “doesn’t have to show me accounting of where all of my payments have been going…”

    Yup—that’s the world we live in…

    See you in BK court…

  7. Copied to my facebook page. I have been fighting foreclosure for almost two years now. Won the eviction and sued the banks. Still don’t know who actually owns the note or the mortgage, it was sold three ways right after we signed the papers…..mind boggling.

  8. That’s right, WE ARE TOO BIG TO FAIL, and it’s true those homeowners out there who are clueless about what’s going on need to be aware of this housing crisis. We all believed for decades and I am included that the banks are to be trusted and that our government is going to protect us; how wrong were we?

    Everyone will be effected one way or another, and if the people don’t wake up and understand what’s happening in their own back yards, then everyone loses. I am doing my part and I asked everyone in my family to step up and do the same, speak out and reach out and let it be known that together we can make a change for the better for ourselves and our communities.

    All it takes is someone to bring people’s attention to the crisis and the truth behind the crisis, and not be afraid to take a step forward and learn something new, and then pass it along. If it was not for those of you out there blogging and discussing things in reference to the housing crisis and the predatory lending I would not have known anything and blindly kept on doing what I would normally believe it’s the thing to do.

    Just like most people out there we just go on with our daily lives not realizing that we have become a large part of something we never knew about, and we never signed up on it to with any knowledge. We signed off our rights and our homes and our freedom unknowingly to predators pretending to be our neighborhood banks and our confidants, and our protectors. Now we have to fight back for what belongs to us in the first place.

    You can count on me and my family to reach out and spread the knowledge, and since we are very responsible homeowners, and I mean that in the most profound way. Any homeowner who is fighting the predatory lending and fighting the banks are standing up for change for the better for the rest of the country. We are not irresponsible, not by any means, we are trying to free ourselves from a bad place and clear our land titles from the dirt that had set on them from those who had corrupted our system and stole our wealth.

    And for those who believe that homeowners who fell into the hands of predators and consequently lost all their possessions and now fighting for their dignity and for the rest who are not, they will one day be thankful for those homeowners who are standing in the battle fields crying out for justice. Let there by light, I AM IN!

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